Review of Industrial Organization

, Volume 40, Issue 2, pp 109–129 | Cite as

A New Method for Estimating Market Power with an Application to Norwegian Sawmilling

  • Subal C. KumbhakarEmail author
  • Sjur Baardsen
  • Gudbrand Lien


In this paper we apply an innovative econometric tool to estimate mark-ups in an output market. The contribution of the paper is in the novel use of the stochastic frontier approach that is widely used to estimate efficiency. We show that this method, which we call the stochastic frontier estimator of market power, can be used both in the dual cost function framework and in the primal framework, and that mark-ups can be estimated with or without constant returns to scale. We apply this method to the Norwegian sawmilling industry, 1974–91.


Input distance function Market failure Market power Sawmilling Stochastic frontier 

JEL Classification

L11 L12 L73 D22 C54 


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Copyright information

© Springer Science+Business Media, LLC. 2012

Authors and Affiliations

  • Subal C. Kumbhakar
    • 1
    • 4
    Email author
  • Sjur Baardsen
    • 2
    • 3
  • Gudbrand Lien
    • 4
    • 5
  1. 1.Department of EconomicsState University of New YorkBinghamtonUSA
  2. 2.Department of Ecology and Natural Resource ManagementNorwegian University of Life SciencesAasNorway
  3. 3.Eastern Norway Research InstituteLillehammerNorway
  4. 4.Norwegian Agricultural Economics Research InstituteOsloNorway
  5. 5.Lillehammer University CollegeLillehammerNorway

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